Dow Jones Slides as Deadly China Virus Threatens to Derail Economy

Global stock markets recoil as China confirms the coronavirus, which has taken four lives, is contagious and spreading beyond the mainland.
Posted in: Markets
Published:
January 21, 2020 11:35 AM UTC
  • The Dow Jones fell 40 points at the open on Tuesday.
  • The deadly coronavirus, originating in China, claimed a fourth life and was confirmed contagious by experts on Tuesday.
  • Global stock markets plunged as memories of the SARS virus returned, which hit economies hard and triggered recessions in some Asian countries.

Global stocks took a brutal plunge overnight as fears of a virus pandemic gripped the markets. The Dow Jones Industrial Average (DJIA) opened 40 points lower, pointing to a weak session on the U.S. stock market.

China confirmed that the deadly coronavirus, which killed a fourth person last night, can be transmitted from person-to-person. The World Health Organization urged countries to “be ready” for the virus to spread. Investors who remember the devastating SARS virus in 2003 sent the financial markets into a panic.

“I remember the SARS outbreak very, very clearly and the impact it had. These things have an enormous hit on economies. It is not inconceivable that if [the coronavirus] becomes more widely spread, and starts to claim more lives, that it will result in a similar response” – Rob Carnell, ING.

Dow Jones weak on Tuesday

After a quiet trading day on Monday, the Dow Jones opened with a slump on Tuesday. The Asian markets and U.S. futures market collapsed overnight and only mildly recovered going into the U.S. session. 

The Dow Jones Industrial Average (DJIA) opened lower on fears of a looming global pandemic. Source: Yahoo Finance

The S&P 500 and Nasdaq Composite were down 0.19% and 0.18% respectively. Bitcoin traded at $8,615.

What is the coronavirus?

Very little is known about the deadly virus so far. 291 cases have been confirmed, with four deaths. The virus is thought to have emerged in a Wuhan fish market and has since spread from mainland China to Japan, South Korea, and Thailand. The World Health Organization urged countries to “be ready.”

There is still much to understand about this virus. We still don’t know what the exact source of the virus is. We don’t know how exactly it is being transmitted. How easily it is being spread among humans. And we’re looking into the severity of the virus. We know it causes respiratory illness and likely sources [from] the animal world. We are advising countries to be ready.

The timing of the outbreak is particularly worrying. It strikes ahead of China’s Lunar New Year – often referred to as the “largest human migration on the planet” as families travel through Asia.

How will coronavirus hit the stock market?

Global pandemics have a history of derailing economies. The SARS virus, which killed 774 across Asia and Canada sent some nations into recession.

Things like this … stop people from undertaking economic activity. You don’t go out. You don’t travel. You don’t eat out … You don’t even need lots of people to die or even get sick. You just need people to be worried about that to have a very very massive impact, and potentially quite a long-lasting impact.

Asian airline stocks were the first to take a hit when the news broke overnight. Retail and travel stocks also slumped, while health and pharmaceuticals rallied.

The Dow Jones is on thin ice

The news also shows how precarious the Dow Jones is this current moment. At record highs, and wildly overvalued by most models, it won’t take much to trigger a stock market pullback.

“[The coronavirus outbreak shows], if nothing else, that the global economy has precious spare capacity to absorb unexpected crises” – Jeffrey Halley, senior market analyst for Asia Pacific at Oanda.

Early signs predict that coronavirus is not as aggressive as SARS, but investors will be watching this closely.

This article was edited by Samburaj Das for CCN.com. If you see a breach of our Code of Ethics or Rights and Duties of the Editor, or find a factual, spelling, or grammar error, please contact us and we will look at it as soon as possible.

Last modified: June 14, 2020 9:53 AM UTC

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Ben Brown @_ben_brown

Ben is a journalist with a decade of experience covering financial markets. Based in London, UK, his writing has appeared in The Huffington Post and he was Chief Editor at Block Explorer, the world's longest-running source of Blockchain data. Reach him at benjamin-brown.uk or on Twitter at _Ben_Brown. Email ben @ benjamin-brown.uk.